NEW YORK — The U.S. Securities and Exchange Commission (SEC) has given JPMorgan Chase & Co. the go-ahead to list and trade shares in a physical copper exchange-traded fund (ETF) in a move that will come as a blow to a group of key copper consumers.
The trading and markets division of the SEC said it will allow the New York Stock Exchange to amend its rules to allow the proposed ETFs to be listed and traded on the exchange.
The SEC said it is approving the proposed rule change "on an accelerated basis."
"The commission agrees with (JPMorgan) that copper held by the ETF trust will remain available to consumers and other participants in the copper market," it said.
The SEC also said there are "very substantial copper inventories outside the (London Metal Exchange) and Comex that are deliverable on a short-term basis" that could be used to back the ETF.
JPMorgan has provided data showing 1.4 million tonnes of LME-grade copper stocks worldwide at the end of July, of which 70 percent wasn’t under warrant at any exchange, the regulator said. For instance, there are about 500,000 to 600,000 tonnes of bonded copper in Shanghai and Guangzhou, of which just 10 percent isn’t deliverable.
The U.S. bank still needs to secure approval for the product’s prospectus before it can proceed. JPMorgan, which filed for permission to launch the ETFs more than two years ago, needs to revisit its prospectus to enable the SEC’s Division of Corporation Finance to determine whether additional disclosure is required.
The SEC’s Division of Trading and Markets is required to put a deadline on its decisions, but there is no such deadline for the corporation finance division to decide whether the new ETF’s prospectus meets its requirements.
The trading and markets division has until Dec. 24 to make a decision on a similar physical copper ETF proposed by BlackRock Inc.
Copper consumers—including Southwire Co., Carrollton, Ga.; Encore Wire Corp., McKinney, Texas; London-based Luvata UK Ltd.; and AmRod Corp., Newark, N.J.; and metals-focused hedge fund RK Capital Management LLC, London—have made a concerted effort to fight the launch of the ETFs.
The group—which has said that the new ETFs, if permitted, will remove copper from the market, distort prices and create unnecessary price volatility that would make their copper businesses uncompetitive internationally—earlier this month was denied a request to present their views orally to the SEC (amm.com, Dec. 10).
"We are very disappointed in the ruling, which we continue to believe will result in the removal of substantial amounts of copper available for immediate delivery and, as we demonstrated repeatedly to the commission staff, could have a devastating impact on U.S. consumers in terms of price volatility and availability of supply," said Robert Bernstein, a partner at New York law firm Eaton & Van Winkle LLP, which represents the consumers.